Mortgage rates retreated this week, even as support builds at the Federal Reserve to begin discussions on when to taper bond purchases that have kept a lid on long-term interest rates.
Freddie Mac’s weekly Primary Mortgage Market Survey showed that during the week ending May 27:
- Rates on 30-year fixed-rate mortgages averaged 2.95 percent with an average 0.7 point, down from 3.00 percent last week and 3.15 percent a year ago. Rates on 30-year fixed-rate mortgages bottomed out at 2.65 percent week ending Jan. 7, 2021, an all-time low in Freddie Mac records dating to 1971.
- For 15-year fixed-rate mortgages, rates averaged 2.27 percent with an average 0.6 point, down from 2.29 last week and 2.62 percent a year ago. Rates on 15-year fixed rate mortgages also bottomed at 2.16 percent during the week ending Jan. 7, 2021, an all-time low in records dating to 1991.
- Rates on 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM loans) averaged 2.59 percent with an average 0.2 point, unchanged from last week, but down from 3.13 percent a year ago. Rates on 5-year ARM loans hit an all-time low of 2.56 percent during the week ending May 2, 2013, in Freddie Mac records dating to 2005.
Average rates for 30-year fixed-rate mortgage rates dipped below the 3 percent threshold last summer as the Federal Reserve and other investors piled into mortgage-backed securities, hitting an all-time low of 2.65 percent during the week ending Jan. 7, 2021.
After climbing in February and March on fears of inflation, mortgage rates retreated in April, and have remained at or below 3 percent in Freddie Mac’s survey throughout May.
The Federal Reserve has stated it intends to keep short-term interest rates near 0 percent until unemployment falls and inflation is on track to “moderately exceed 2 percent for some time.”
The Fed doesn’t have the same direct influence on mortgage rates, which are determined largely by investor demand for mortgage-backed securities. But the during the pandemic, the Fed has helped keep a lid on long-term rates by buying $40 billion in mortgage-backed securities and $80 billion in Treasurys every month.
Eventually, the Fed will have to taper those purchases. To avoid a panic, or “taper tantrum” by bond investors, the Fed is expected to telegraph any such moves well in advance.
Speaking at a Brookings Institution event this week, the Fed’s vice chair for supervision, Randal Quarles, said that if recent trends in economic growth, employment and inflation all continue on their current trajectories, the Federal Open Market Committee should at least “begin discussing our plans to adjust the pace of asset purchases at upcoming meetings.”
Quarles said that even though inflation is currently running “significantly above” the Federal Reserve’s longer-run goal of 2 percent, he sees much of a recent boost in inflation as “transitory,” driven by a sudden surge in demand as more services come back on line, the emergence of bottlenecks in some supply chains, and “the very low inflation readings recorded last spring dropping out of the calculation of 12-month inflation.”
But Quarles believed it might be useful if the Fed could provide more specifics about what constitutes “substantial further progress” toward its “broad and inclusive definition of maximum employment.”
Two Federal Reserve bank presidents — Philadelphia Fed President Patrick Harker and Dallas Fed President Robert Kaplan — have also said they the Fed should start talking about when it might taper its asset purchases. But Fed Chair Jerome Powell is on the record as saying it’s still too early, Reuters reported.
Low mortgage rates and rising incomes can help homebuyers afford more expensive homes, but inventory shortages have pushed up prices in many markets, wiping out any affordability boost from rising “house-buying power,” according to a home price index compiled by First American.
The latest data from ICE Mortgage Technology shows that mortgage lenders have been relaxing underwriting standards, but only to compete for borrowers who are refinancing. For both homebuyers and homeowners seeking to refinance, credit remains tighter than before the pandemic.